U.S. Pharmaceutical Tariffs Coming Soon?

We’ve known that this day would be coming.   

In April, President Trump announced that a S.232 investigation would be looking at the pharmaceutical sector and whether action would need to be taken to rectify any trade deficit.  Everyone knows by now that any such investigation was always going to result in the introduction of tariffs.  

The UK-U.S. Economic Prosperity Deal that was announced in May specifically outlined provisions to “promptly negotiate significantly preferential treatment outcomes on pharmaceuticals and pharmaceutical ingredients” depending on the outcome of the S.232 investigations.  All in all, it was pretty inevitable.  

However, until this week, we haven’t had a clear picture of when these tariffs will be introduced or the level of the tariff.  When asked earlier this week, President Trump stated: 

"Pharmaceuticals will be tariffed, probably at the end of the month. Start off with a low tariff and give the pharmaceutical companies a year or so to build.  "And then we're going to make it a very high tariff, because we've got to move them in.  "Look, there are two ways you do it. You make money... and/or you have them move here so they don't have to pay the tariff." 

A figure as high as 200% has been mooted, but, knowing the President’s previous negotiation tactics, we’ll have to wait and see where the figure lands.  As Trump hinted at in the statement, it is likely that the initial tariff rate will be considerably lower than 200% but, at least in the first instance, there may be the threat that the figure could rise to a three-figure sum within 1-2 years. 

What will the UK tariff be? 

If a tariff is to be introduced at the end of the month, the UK does not have long to agree upon a reduced preferential rate.  The President is due to visit the UK for a state visit in September, with talks between the President and Prime Minister are likely to take place.  

In the meantime, there is the possibility that the U.S. will follow the same format they took when it came to the UK and the increase in steel and aluminium tariffs.  For these products, the UK remained at the rate of 25% rather than the new 50%, on the basis that they would continue to negotiate a formal agreement.  

Either way, it doesn’t seem like it will be too long to wait to see the impact.